Tesla chief Elon Musk faces being barred from running a public company after the US Securities and Exchange Commission (SEC) filed legal action, accusing him of alleged securities fraud over his public statements about taking the firm private.
Tesla shares dropped more than 13 per cent in after-hours trade as news of the suit broke, losing over $6bn of its market value.
The SEC case, filed in New York this afternoon, alleges the Tesla billionaire made “false and misleading statements” in his now infamous 7 August tweet.
Musk tweeted his plans to take Tesla private at $420 per share, with “funding secured”. He later rowed back on those comments to allege he had been given strong assurances from the Saudi Arabian Public Investment Fund that it would fund a future buyout.
The SEC’s charges against Musk could see him banned from acting as an officer or director of a public company and subject him to substantial civil penalties. There could also be a requirement to pay back any premiums he received from Tesla’s share price inflation after the tweet.
The watchdog said Musk “knew, or was reckless in not knowing” that his statements would mislead investors, and that it was “simply not true” that the only contingency remaining in his plan was a shareholder vote. Among other things, Musk is said to have ignored the advice of his investor relations department which said it would be difficult for retail investors and smaller shareholders to remain invested in the company.
“By engaging in the conduct alleged in this complaint, Musk violated [US securities law] and unless restrained and enjoined would violate again,” the watchdog added.
In a press conference tonight prosecutors alleged Musk had “neither secured a commitment of funding from any source, nor confirmed investor support” for taking the company private at any point.
They further alleged Musk had arrived at the $420 target price “because of its significance in marijuana culture, and thought his girlfriend would be amused by it”.
Elon Musk later responded to the SEC, calling its actions against him “unjustified”.
He added: “Integrity is the most important value in my life, and the facts will show I never compromised this in any way.”
Pending final judgement from the court, Musk will remain as chief executive at Tesla unless he or its board decide otherwise.
The SEC reaffirmed its commitment to holding individuals to account, adding: “Neither celebrity status nor reputation as a technological innovator provide exemption.”